On May 16, 2019 the Polish legislator published draft of amendments to the VAT act aimed at introducing mandatory split payment mechanism for selected goods and services in Poland. This is a follow up to derogation decision that granted Poland right to introduce mandatory split payment. Find below the most important information resulting from the draft legislation:

• the obligatory split payment applies only to transactions made between taxpayers (B2B), which are subject to VAT in Poland and with value exceeding 15 000 zł,
• the obligation to use the split payment mechanism will cover selected goods and services,
• foreign entities settling transactions by means of bank transfers subject to VAT in Poland will be obliged to open a bank account in Poland,
• new invoice layout requirements will be introduced in order to mark an invoice documenting delivery of goods / services subject to the mandatory split payment method,
• it will be possible to cover multiple invoices with single split payment operation (collective payment),
• funds accumulated on VAT account can be used to pay other tax liabilities (PIT, CIT, excise, customs duties) as well as social security (ZUS).

Goods and services covered by the mandatory split payment

 According to the annex to the draft legislation, the split payment mechanism will obligatorily be applied to 150 product and service groups defined in accordance with the Polish Classification of Products and Services (PKWiU) from 2008.

In general, the following groups of goods and services can be distinguished:

• steel products, precious metals, non-ferrous metals;
• waste, scrap, recyclable materials;
• electronics, specifically: processors, smartphones, phones, tablets, net-books, laptops, game consoles, inks, toners, hard drives;
• fuels for cars, fuel and lubricating oils;
• greenhouse gas emission rights;
• building and constructions services;
• coal;
• sale of car and motorcycle parts.

Sanctions for lack of compliance

There are numerous sanctions that can be imposed for lack of compliance with using split payment when it is required. In case of:

• failure to include on the invoice information that transaction is subject to mandatory split payment regime, the invoice issuer may receive a fine of 100% of the VAT value resulting from such invoice,
• failure to pay in the mandatory split payment regime, the buyer may receive a penalty equal to 100% of the VAT value resulting from such invoice,
• failure to pay in the mandatory split payment regime, the buyer will not be entitled to treat such cost as tax deductible (from CIT / PIT perspective),
• failure to pay in the mandatory split payment regime, the person responsible for the occurrence of such a situation will be subject to sanctions resulting from the fiscal penal code (up to 720 daily rates).

Important matters

Taking into account the risk of imposing significant sanctions, both on the part of the supplier and the buyer, it will be crucial to properly identify the transactions covered by the obligatory split payment method and then comply with this regime. However, there are doubts about the transaction value, i.e. how to determine what triggers the 15 000 zl transaction limit (is this amount based on individual invoice, transaction group, payment) and how to identify certain goods and services covered by the mandatory split payment. Specifically, the way car and motorcycle parts were mentioned (as a reference to type of activity being wholesale and retail trade) will cause significant interpretation troubles for automotive industry.

Entry into force

The legislator planned that rules on the obligatory split payment become effective from 1 September 2019. Some provisions (for example PIT / CIT sanctions related with not using split payment) will take effect from January 1, 2020.

Necessary actions

In order to avoid sanctions and possible personal liability, every taxpayer who purchases or sells oods or services covered by the mandatory split payment should be prepared for introduction on this regime.

Such preparation should include at least:

• identification of goods and services for which split payment will have to be used (AP),
• identification of goods and services for which a VAT invoice issued should contain the
• information “split payment mechanism” (AR),
• establishing rules on recognizing when 15 000 zł threshold is exceeded,
• aligning payment and invoicing processes in order to achieve compliance with split payment rules.

If your booking, invoicing or payment processing is done via SSC, it will be particularly important to initiate changes of these processes early enough.

Another important matter is solvency. With cash flow impact by receiving only net values on regular accounts, funds accumulated on VAT account could become significant challenge over time. Especially business that are on VAT refund position should be aware of this.

For further details please contact

Tomasz Kassel, Partner
Tel. + 48 502 184 846
tomasz.kassel@pwc.com

Tomasz Pabiański, Director
Tel. + 48 502 184 952
tomasz.pabianski@pwc.com

Jakub Matusiak, Director
Tel + 48 502 184 468
jakub.matusiak@pwc.com

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